MSCI Defers China Decision, but Confirms It’s Only a Matter of Time

beautiful shanghai yuyuan garden at night

MSCI has deferred its decision on adding China A-shares to its indices. In this piece, we discuss the market’s reaction and when to expect a decision from the index provider.

MSCI deferred its decision on including China A-shares in its indices.  Instead, MSCI said it will work with China regulator CSRC in an effort to address the remaining obstacles.  It said that it expects to add the A-shares “after a few important remaining issues related to market accessibility have been resolved” and added that “the concerns include, but are not limited to, the quota allocation process, capital mobility restrictions and beneficial ownership of investments.”

MSCI said that it may update its decision to include A-shares as soon as the issues are resolved, and that this may happen outside the regularly scheduled annual Market Classification Review.  China equities are initially softer on disappointment over the delay, with the Shanghai Composite down 2% as this goes to press.  However, it seems to us that it is only a matter of “when” and not “if” the A-shares are eventually included in the MSCI indices.  Given the language used by MSCI, one should fully expect the inclusion to happen before the June 2016 review.

There was some other related news.  MSCI said it would seek feedback from global institutional investors on the accessibility of the Saudi Arabian market following its opening on June 1, 2015 before considering whether or not to add the country to the review list for potential inclusion in its MSCI EM index.  MSCI also added Pakistan to the review list for inclusion in its MSCI EM index, noting a number of positive developments in the country.